Fergal Carton / AFIS MBA 642 / BIS Foundation

Fergal Carton / AFIS MBA 642 / BIS Foundation DELL Direct model Price for Performance –No resellers, retailers or other intermediary steps –Efficient procurement, manufacturing and distribution process Customization –Every Dell system is built to order Service and Support –Dell provides tailored customer service Latest Technology. –Latest technology introduced quickly –Inventory is turned over every 10 days

Fergal Carton / AFIS MBA 642 / BIS Foundation Dell case study A “mix” retailer (sells both on the web and via traditional channels) $10 million worth of goods sold per day on their web site (from $1 million in 1997) Dell will soon be selling more on their web site than through the normal distribution channels Direct sales cut out a number of intermediaries (and the margin that they would normally add to the price of a PC)

Fergal Carton / AFIS MBA 642 / BIS Foundation “It has never been so easy to buy a PC“ Dell goal : quickly manufacture and deliver inexpensive, good quality PCs Simplify and improve the customer’s experience of purchasing a computer Dell also benefits from the increase in efficiency : Built-to-Order (BTO) model of manufacturing whereby no goods are produced until there is a demand for them

Fergal Carton / AFIS MBA 642 / BIS Foundation BTO model is difficult to maintain Especially in industries where customers demand very short lead times … …and where the goods manufactured require a complex assembly / testing process (eg. computers) Most computer manufacturers must use planning and demand forecasting models for their production facilities Computers are produced without specific knowledge of customer demand There may be unexpected variations leading to excess production of some models and shortage of others Obsolete stocks! Lost sales!

Fergal Carton / AFIS MBA 642 / BIS Foundation BTO model is difficult to maintain Especially in industries where customers demand very short lead times … …and where the goods manufactured require a complex assembly / testing process (eg. computers) Most computer manufacturers must use planning and demand forecasting models for their production facilities Computers are produced without specific knowledge of customer demand There may be unexpected variations leading to excess production of some models and shortage of others Obsolete stocks! Eg. Boeing $2.6b in 1997 Lost sales!

Fergal Carton / AFIS MBA 642 / BIS Foundation Ultra quick order processing Wait until a PC is ordered before committing to production All orders routed through 1 of 3 data centres (US, Europe and Asia) Orders dispatched to nearest production facility Just-in-Time factories (located very close to their suppliers) maintain no stocks Trucks filled with components needed to produce PCs are permanently connected to special loading bays

Fergal Carton / AFIS MBA 642 / BIS Foundation Ultra quick order processing Contents of these trucks does not belong to Dell, but to their suppliers Dell will only pay for this inventory when it is taken from the trucks and used on the assembly lines As the PCs move along this line, a tag is attached to them : who has purchased them and what else they have ordered (so that orders can be brought together) A monitoring system tracks PCs, giving operators configuration info for the computer at each stage of the production process

Fergal Carton / AFIS MBA 642 / BIS Foundation Ultra quick order processing Within hours, the PC has been assembled and tested and rolls straight into waiting delivery truck A scanner system ensures that the PCs are loaded in the truck that supplies the distribution centre nearest to the delivery address of the customer For example, in Dell’s Limerick facilities in Ireland, some trucks are supplying the local market, while others go to Germany, France and to the Scandinavian countries

Fergal Carton / AFIS MBA 642 / BIS Foundation Ultra quick order processing Any PC sold by Dell is delivered to the final customer within a few days and always within a week Dell never pays for any inventory before they need it to assemble a finished product Dell get paid for the PCs they build even before they are assembled Dell’s cash flow has been improved drastically and they can generate additional revenues from their positive cash flow situation

Fergal Carton / AFIS MBA 642 / BIS Foundation Secret to Dell’s success? Robust order acquisition and processing systems Produce and ship the proper equipment (what was ordered) to the proper customer (the person who ordered it). Dell can do this more efficiently than anybody else which enables them to produce cheaper PCs for a given specification